Income gap widens between Michigan's wealthiest and poorest families

Falling incomes for Michigan’s poorest households have increased the already wide income gap with the richest households, according to a new study by the Center on Budget and Policy Priorities and the Economic Policy Institute.

“State tax policy must address the growing wage gap in Michigan because it is harmful for all in our state,’’ said Karen Holcomb-Merrill, policy director of the Michigan League for Public Policy. “As Gov. (Rick) Snyder prepares next year’s budget, he must offer ideas that make our tax system less regressive instead of growing the economic divide. Tax cuts that benefit Michigan’s richest households without helping poor and middle-income are the wrong way to go.’’

From the late 1990s to the mid-2000s, household incomes fell or stagnated across the board. The bottom fifth of households lost more than 10 percent of income — a drop from $23,700 to $21,300 — while the top fifth lost just over 3 percent, a drop from $164,900 to 159,600.

The report, Pulling Apart: A State-by-State Analysis of Income Trends, also finds that low-and moderate-income Michiganians generally fared worse than higher-income households since the late 1970s:

Advertisement

— While incomes for the richest fifth of households grew nearly 50 percent from the late 1970s to the mid-2000s, incomes for the poorest fifth dropped almost 4 percent.

— The incomes of the top fifth of households in the mid-2000s earned 7.5 times the average income of the bottom fifth. In the 1970s, the top fifth made less than five times as much as the poorest fifth.

— The top 5 percent of wage earners in Michigan had income more than 12 times larger than the bottom fifth in the mid-2000s. In the 1970s, the top 5 percent made only six times more than the poorest fifth.

In Michigan, the shift from good-paying manufacturing jobs to service jobs is a key reason for the widening income disparity. The gap is rising across the nation because of long periods of unemployment, more intense competition from foreign firms and a minimum wage that has not kept up with price increases.

In 2011, Snyder and lawmakers enacted policies that could worsen the gap. Those decisions should be reversed immediately, the report says, and policymakers should start doing more to address the gap between the rich and poor, including:

— Restore the traditional period of unemployment from 20 weeks to 26 weeks;

— Return the Michigan Earned Income Tax Credit for working families from 6 percent of the federal credit to 20 percent;

— Index the state’s minimum wage law — last raised in 2008 — to adjust for inflation.

“In years past, Michigan has been a shining example of an economy that works because of a strong middle class,’’ Holcomb-Merrill said. “We need to make sure our budget and tax system works to strengthen our low- and middle-income families rather than making life more difficult for them.’’’